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Newsletter – Kal, Aaj Aur Kal – Research & Ranking

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K A L , A A J  A U R K A L

1971 Movie

Three generations of a family, decide to live together. However,their different mindsets create conflicts with each other and disrupt the harmony of the house.
However, in the end all of them realise that they have to respect each other to live a good life.

2020 Equity Portfolio

Similarly, while investing in the equity markets, we have to analyse data which may pertain to the past situation, present situation or situation likely to emerge in the future. All of these data have to be given equal respect without letting one set of data drive the investment decisions. This will ensure harmony in the mind (read portfolio).

KAL (YESTERDAY)- MAR-JUN 2020

QUARTERLY GDP GROWTH RATE

FY21 will see negative GDP growth (anywhere between 3%-6%) first time after 40 years. Other countries are also in the same boat. As per IMF, the global economy is expected to contract by 4.9% in 2020: advanced economies by 8%, emerging markets by 3%; the bounce back in 2021 is also likely to be sharp: 5.4%, 4.8% and 5.9% respectively.

1QFY21 CONTRACTION COMPARISON GLOBALLY

Q1FY21 contraction is highest because of the most stringent lockdown globally. However, the fatality rate was also amongst the lowest, at less than 2% vs. 5-12% in most countries.

Taking clue from China where GDP rose 12% in Q1FY21 vs. 10% contraction in the previous quarter, India’s GDP should also bounce back sharply in Q2FY21 and then improve in subsequent quarters thereafter.

Q1FY20 RESULT TREND

COVID CASES COUNTRY-WISE- JUNE 2020

HIGH LEVEL OF FUND RAISING BY CORPORATES DURING APR-AUG 2020

AAJ (TODAY)- JULY-SEPT 2020

What are we hearing/ reading – Key events during month of August 2020

The on-ground activity seems to be normalizing in July faster than expected. Our channel checks and on-ground readings suggest:

*If sales was 100 units pre Covid (Jan/Feb), then current sales is 75 units or 85 units as case may be.

July & August has thrown many positive surprises

  •  Manufacturing PMI at 52.2 (vs 51.4 yoy) in Aug, the first expansion since lockdown.
  •  E-way bills hit Rs. 13.8 lacs crores, which is 97% of its year ago period.
  •  Rail freight at 95.2 MT, which is 97% of its year ago period in July.
  •  Passenger vehicles and 2wheelers in August are at 95% & 90% of its year ago period.

AUTO MONTHLY DISPATCHED TREND

COVID CASES COUNTRY-WISE- SEPTEMBER 2020

K E Y  E V E N T S  D U R I N G  M O N T H  O F  A U G U S T  2 0 2 0

  • Border tensions between India and China erupted once again; Government of India banned another 110 Chinese apps. 
  • India entered the list of top 3 countries hit by coronavirus as confirmed cases rose to +35 lakh, but total cases and deaths as a percentage of the population remained much lower than other severely affected countries .
  • GST collections in August was at Rs. 86,449 crores (down just 12% YOY), but lower than Rs. 87,422 crores in July and Rs. 90,917 crores in June. There is strong chance we should revert back to monthly run-rate of Rs. 100,000 crores per month starting October 2020.
  • 10 year bond yields went below 6% in Jul’20, after a gap of 12 years.
  • FIIs were net buyers of $5 bn during August. the highest in 2020.

KAL (TOMORROW)-  OCT-DEC 2020 & BEYOND

E-Commerce order volume growth has been 17% during Apr-Jun 2020 led by smaller cities and first time consumers; 66% share of Tier 2 and beyond, 53% share from Tier 3 and beyond.

Telecom firms get breather in AGR case, SC allows them 10 years to clear dues; Only 10% to be paid before 31st Mar 2021.

The second round of moratorium closed on 31st August 2020. However, retail borrowers may still get relief on repayment and tenure through a one-time restructuring scheme, which is in works. The proposed loan restructuring will enable banks to extend the term of retail loans by two years without increasing customers’ EMI amounts (equated monthly instalments). At present, loan accounts that are in default for not more than 30 days as on 1 March 2020 are eligible for restructuring.

RAPID IMPROVEMENT IN THE ON-GROUND ACTIVITY IN JULY/AUG LIKELY TO CONTINUE

K E Y  U P C O M I N G  E V E N T S

Events in the coming months that will provide swings to the markets are:

Vertical unlock state wise & opening of remaining pockets

Ramp-up in demand post ease of vertical/micro city/state lockdown in select areas. Opening of
food courts, entertainment zones, restaurants, bars, multiplex, gym, clubs etc.

US Presidential election (Nov\’20)

The U.S. Presidential Election will be top event to watch out for in coming months.

The state election in India (Bihar) in Nov\’20
The ruling party at Centre & State would have to avoid significant reforms which could derail the economy again and instead focus on measures which will enhance domestic consumption.

R e s e a r c h & R a n k i n g  V i e w
It may not be a bold statement to make that bottom of the market is behind us.

What will lend support is the $12 tn global stimulus packages, advancement in research on vaccine, cure and markets/people looking beyond pandemic (not fretting as much as in Mar/Apr). We expect Nifty consolidating in the range of 11,000-12,000 in the near term and then move past 12,000 post Oct\’20. We believe investors should consider investing half of their investible surplus now with the balance half in a staggered manner over the coming 2-4
months depending on advancement towards availability of a vaccine and
business return to complete normalcy.

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For a detailed assessment, we had recorded a webinar a couple of days back. You can view the
same here.

Best Practices For Wealth Creation

Rather than wait for Nifty correction, we suggest:

  • Staggered buying approach: Use every dip as an opportunity to buy.
  • Stock specific approach: Identify a few solid businesses that you would like to own; start accumulating them.
  • Long-term approach: Keep a horizon of 3-5 years while investing in these businesses.     
  • Stay focused: Avoid getting distracted from information overload/distraction/rumors via forwards on WhatsApp/Twitter/news channel.
  • Trust time in the market: Don’t try to time by selling portfolio now and reentering at lower levels later.

Always remember, our country of 1.37 billion people is vastly underpenetrated in most aspects vis-à-vis developed countries. History has shown us that crisis when combined with above point creates ample multi-year opportunities for growth and wealth creation, provided you\’ve invested your money in the right hands.

Read more:  How Long-term investing helps create life-changing wealth – TOI.

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